Statistics for Business

and Economics
Anderson Sweeney Williams
Slides by
John Loucks
St. Edwards University

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 1
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Chapter 3, Part A
Descriptive Statistics: Numerical Measures
Measures of Location
Measures of Variability

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Slide 2
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Measures of Location

Mean
If the measures are computed
Median
for data from a sample,
Mode they are called sample statistics.
Percentiles
Quartiles If the measures are computed
for data from a population,
they are called population parameters.

A sample statistic is referred to

as the point estimator of the
corresponding population parameter.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Mean

Perhaps the most important measure of location is

the mean.
The mean provides a measure of central location.
The mean of a data set is the average of all the data
values.
The sample mean x is the point estimator of the
population mean m.
Can be affected by extreme values

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 Mean

Permissible on nominal scale?

Permissible on ordinal scale?

Permissible on interval scale?

Permissible on ratio scale?

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Slide 5
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 The sum of squared deviations of scores from
their mean is lower than their squared
deviations
from any other number.

The numbers 1, 2, 3, 7, 8, 9, 12 have a mean of 6

and median of 7.
What is sum of squared deviation from mean?
What is squared deviation from median?
What is sum of squared deviation from 2?
What is sum of squared deviation from 9?

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 Did you hear about the statistician
who had his head in an oven and his
feet in a bucket of ice?
When asked how he felt, he replied,

"On the average I feel just fine."

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 "When she told me I was average, she was
just being mean".

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Sample Mean x

Sum of the values

of the n observations

x i
x
n
Number of
observations
in the sample

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Population Mean m

Sum of the values

of the N observations

x i
m
N
Number of
observations in
the population

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Sample Mean

Example: Apartment Rents

Seventy efficiency apartments were randomly
sampled in a small college town. The monthly rent
prices for these apartments are listed below.
445 615 430 590 435 600 460 600 440 615
440 440 440 525 425 445 575 445 450 450
465 450 525 450 450 460 435 460 465 480
450 470 490 472 475 475 500 480 570 465
600 485 580 470 490 500 549 500 500 480
570 515 450 445 525 535 475 550 480 510
510 575 490 435 600 435 445 435 430 440

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Sample Mean

Example: Apartment Rents

x x

34, 356
i
490.80
n 70
445 615 430 590 435 600 460 600 440 615
440 440 440 525 425 445 575 445 450 450
465 450 525 450 450 460 435 460 465 480
450 470 490 472 475 475 500 480 570 465
600 485 580 470 490 500 549 500 500 480
570 515 450 445 525 535 475 550 480 510
510 575 490 435 600 435 445 435 430 440

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Slide 12
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Weighted Mean
Consider sample of five purchases below:.
What is a representative central cost?
Purchase Cost per Kg, Rs Number of Kgs
Transaction no.
1 3.00 1200
2 3.40 500
3 2.80 2750
4 2.90 1000
5 3.25 800

Do we go for arithmetic mean?

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Weighted Mean

Mean assigns equal weight.

Does not make sense in many situations.

Assign appropriate different weights and go for:

Weighted mean
= sumproduct of weight and value / sum of weights

= (1200*3+500*3.4+2750*2.8+1000*2.9+800*3.25)
/ (1200+500+2750+1000+800)
= 18500/6250
=2.96

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Median

The median of a data set is the value in the middle

when the data items are arranged in ascending order.
Whenever a data set has extreme values, the median
is the preferred measure of central location.
The median is the measure of location most often
reported for annual income and property value data.
A few extremely large incomes or property values
can inflate the mean.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Median

For an odd number of observations:

26 18 27 12 14 27 19 7 observations

12 14 18 19 26 27 27 in ascending order

the median is the middle value.

Median = 19

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 Median

For an even number of observations:

26 18 27 12 14 27 30 19 8 observations

12 14 18 19 26 27 27 30 in ascending order

the median is the average of the middle two values.

Median = (19 + 26)/2 = 22.5

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 Median

Example: Apartment Rents

Averaging the 35th and 36th data values:
Median = (475 + 475)/2 = 475
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Note: Data is in ascending order.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Median

Permissible on nominal scale?

Permissible on ordinal scale?

Permissible on interval scale?

Permissible on ratio scale?

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Slide 19
or duplicated, or posted to a publicly accessible website, in whole or in part.
 The median minimizes sum of absolute
deviations.
The numbers 1, 2, 3, 7, 8, 9, 12 have a mean of 6
and median of 7.
What is sum of absolute deviation from mean?
What is sum of absolute deviation from median?
What is sum of absolute deviation from 2?
What is sum of absolute deviation from 9?

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Mode

The mode of a data set is the value that occurs with

greatest frequency.
The greatest frequency can occur at two or more
different values.
If the data have exactly two modes, the data are
bimodal.
If the data have more than two modes, the data are
multimodal.
Caution: If the data are bimodal or multimodal,
Excels MODE function will incorrectly identify a
single mode.

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 Mode

Example: Apartment Rents

450 occurred most frequently (7 times)
Mode = 450
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Note: Data is in ascending order.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Mode

Permissible on nominal scale?

Permissible on ordinal scale?

Permissible on interval scale?

Permissible on ratio scale?

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 23
or duplicated, or posted to a publicly accessible website, in whole or in part.
 The mode (cont.)

It does not necessarily indicate the centre of a

distribution

The mode may in fact be a class interval rather than

an actual data value

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Slide 24
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Mode examples
'Bi-Modal' Distribution
Skewed to the right
16
14 14
12 12
Frequency

Frequency
10 10
8 8
6
6
4
4 2
2 0

0-4
>4-8
>8-12
>12-16
>16-20
>20-24
>24-28
>28-32

>32-36
>36-40
0
1

11

13

15

17

19

Age Class Intervals (years) Age Class Intervals (years)

modes = 5 and 16 mode = >8 - 12

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Comparison of Mean, median and Mode

When data are skewed, the mean and median will

not be equal. The mean will be pulled towards the
skew

IE, for a +ve skew, the mean will be greater than the
median

for a -ve skew, the mean will be less than the median

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Comparison of Mean, median and Mode
The mode tends to act similarly, (but not always)

Skewed to the right

14
12
Frequency

10
8
6
4
2
0
0-4
>4-8
>8-12
>12-16
>16-20
>20-24
>24-28
>28-32
>32-36
>36-40

Age Class Intervals (years)

Mean > Median > Mode

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Comparison of Mean, median and Mode
Skewed to the left

16
14
12
Frequency
10
8
6
4
2
0
0-4
>4-8
>8-12
>12-16
>16-20
>20-24
>24-28
>28-32
>32-36
>36-40
Age Class Intervals (years)

Mean < Median < Mode

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 28
or duplicated, or posted to a publicly accessible website, in whole or in part.
 THE TRIMMED MEAN:

A trimmed mean is calculated by

discarding a certain percentage of the lowest
and the highest scores and then computing
the mean of the remaining scores.

For example, a mean trimmed 50% is

computed by discarding the lower and
higher 25% of the scores and taking the
mean of the remaining scores.
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or duplicated, or posted to a publicly accessible website, in whole or in part.
 THE TRIMMED MEAN:

The median is the mean trimmed 100% and

the arithmetic mean is the mean trimmed 0%.

A trimmed mean is obviously less

susceptible to the effects of extreme scores than
is the arithmetic mean. It is therefore less
susceptible to sampling fluctuation than the
mean for extremely skewed distributions.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 THE TRIMMED MEAN:

Trimmed means are often used in

Olympic scoring to minimize the effects of
extreme ratings possibly caused by biased
judges.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 THE GEOMETRIC MEAN:

Some quantities change over time, at a

rate.
Sometimes we need to know the average
rate of growth over several periods, say
several years.
In this case, the arithmetic mean is
inappropriate, because it gives wrong
answers.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Geometric mean: Example
Year Interest Growth Savings at end of
Rate, % Factor Year, $

1 10 1.10 110

2 30 1.30 =110*1.3 = 143

3 20 1.2 =143*1.2 = 171.6

Take arithmetic average of growth factor and work out

value at end of third year

Does the value match?

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 Geometric mean: Example

172.8 vs 171.6

We go for geometric mean

Geometric Mean for n periods is simply the nth root of the
product of all the values

Thus, when the initial value is multiplied by the GM

n times, the final value should be obtained

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 THE HARMONIC MEAN

The harmonic mean is used to take the mean of

sample sizes. If there are k samples each of
varying size n1, n2nk, the harmonic mean is
defined as:

nh = k / ( (1/n1 ) + ( 1/n2 ) +..( 1/nk ))

Also relevant when calculating average speed

over different distances.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 THE HARMONIC MEAN

If you travel 100 km at 40 km/hr and 100

km at 50 km per hour, what is average
speed?
Is it (40+50)/2 = 45 km/hr?

First 100 km is over in 100/40 =2.5 hours

Next 100 km is over in 100/50 = 2 hours
Average = 200/4.5 = 44.44
This is harmonic mean.
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 THE HARMONIC MEAN

For 40 and 50, the harmonic mean is

= 2 / ( (1/40) + (1/50)) = =44.44

Arithmetic mean greater than Geometric mean

greater than Harmonic mean
AM > GM > HM
Check for 40,50,60

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Percentiles

A percentile provides information about how the

data are spread over the interval from the smallest
value to the largest value.
Admission test scores for colleges and universities
are frequently reported in terms of percentiles.
The pth percentile of a data set is a value such that at
least p percent of the items take on this value or less
and at least (100 - p) percent of the items take on this
value or more.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Percentiles

Arrange the data in ascending order.

Compute index i, the position of the pth percentile.

i = (p/100)n

If i is not an integer, round up. The pth percentile

is the value in the ith position.

If i is an integer, the pth percentile is the average

of the values in positions i and i+1.

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
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or duplicated, or posted to a publicly accessible website, in whole or in part.
 80th Percentile

Example: Apartment Rents

i = (p/100)n = (80/100)70 = 56
Averaging the 56th and 57th data values:
80th Percentile = (535 + 549)/2 = 542
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Note: Data is in ascending order.
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or duplicated, or posted to a publicly accessible website, in whole or in part.
 80th Percentile

Example: Apartment Rents

At least 80% of the At least 20% of the
items take on a items take on a
value of 542 or less. value of 542 or more.
56/70 = .8 or 80% 14/70 = .2 or 20%

425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

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Slide 41
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Quartiles

Quartiles are specific percentiles.

First Quartile = 25th Percentile
Second Quartile = 50th Percentile = Median
Third Quartile = 75th Percentile

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Third Quartile

Example: Apartment Rents

Third quartile = 75th percentile
i = (p/100)n = (75/100)70 = 52.5 = 53
Third quartile = 525
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615
Note: Data is in ascending order.
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Slide 43
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Measures of Variability

It is often desirable to consider measures of variability

(dispersion), as well as measures of location.
For example, in choosing supplier A or supplier B we
might consider not only the average delivery time for
each, but also the variability in delivery time for each.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Measures of Variability

Range
Interquartile Range
Variance
Standard Deviation
Coefficient of Variation

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Slide 45
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Range

The range of a data set is the difference between the

largest and smallest data values.
It is the simplest measure of variability.
It is very sensitive to the smallest and largest data
values.

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Range

Example: Apartment Rents

Range = largest value - smallest value
Range = 615 - 425 = 190
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Note: Data is in ascending order.

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 47
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Interquartile Range

The interquartile range of a data set is the difference

between the third quartile and the first quartile.
It is the range for the middle 50% of the data.
It overcomes the sensitivity to extreme data values.

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 48
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Interquartile Range

Example: Apartment Rents

3rd Quartile (Q3) = 525
1st Quartile (Q1) = 445
Interquartile Range = Q3 - Q1 = 525 - 445 = 80
425 430 430 435 435 435 435 435 440 440
440 440 440 445 445 445 445 445 450 450
450 450 450 450 450 460 460 460 465 465
465 470 470 472 475 475 475 480 480 480
480 485 490 490 490 500 500 500 500 510
510 515 525 525 525 535 549 550 570 570
575 575 580 590 600 600 600 600 615 615

Note: Data is in ascending order.

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Slide 49
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Variance

The variance is a measure of variability that utilizes

all the data.

It is based on the difference between the value of

each observation (xi) and the mean ( x for a sample,
m for a population).

The variance is useful in comparing the variability

of two or more variables.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Variance

The variance is the average of the squared

differences between each data value and the mean.

The variance is computed as follows:

( x x ) 2
( xi m ) 2
s2 i
2
n 1 N
for a for a
sample population

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Slide 51
or duplicated, or posted to a publicly accessible website, in whole or in part.
 Standard Deviation

The standard deviation of a data set is the positive

square root of the variance.

It is measured in the same units as the data, making

it more easily interpreted than the variance.

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Standard Deviation

The standard deviation is computed as follows:

s s2 2

for a for a
sample population

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Coefficient of Variation

The coefficient of variation indicates how large the

standard deviation is in relation to the mean.

The coefficient of variation is computed as follows:

s
100 % 100 %
x m
for a for a
sample population

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or duplicated, or posted to a publicly accessible website, in whole or in part.
 Sample Variance, Standard Deviation,
And Coefficient of Variation
Example: Apartment Rents
Variance
s2 i
( x x ) 2
2, 996.16
n1

Standard Deviation the standard

deviation is
s s 2 2996.16 54.74
about 11%
of the mean
Coefficient of Variation
s 54.74
100 % 100 % 11.15%
x 490.80

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 End of Chapter 3, Part A

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or duplicated, or posted to a publicly accessible website, in whole or in part.